From the mail bag… (aka a question I may have made up to write about)
Q: I have a few occupied
rental homes and wonder if I should sell one of them now that the market seems
to be improving. What are your thoughts?
A. Oh, this is a
surprising question from left field! And
a great one! Kudos to you, mighty
thinker!
It is a tough decision on whether to unload a rental
property. If you decide it may be time
to do so, the first thing is to establish whether you can by asking 4 questions:
1. What is the
realistic value of my property? Have
your trusted real estate
advisor run sales comparables and put your home’s value at the low end of
the range for estimating purposes.
2. How much will it
cost to get my property in sales shape?
In my opinion, there is a difference between getting a home in rental
shape and sales shape. With a rental,
you may get away with steam cleaning the carpet and touching-up the paint; with
sales, there is a lower threshold for cosmetic issues which may mean replacing
the carpet and repainting the house.
3. Do I have the
money to cover the mortgage and utilities while the rental home potentially
sits vacant for months?
Generally-speaking, showing a home effectively with tenants in it is
tough.
4. Do you have the
money to pay the selling costs (Realtor fees, closing costs, less than full
market offer, etc.)?
So, the math looks like:
Answer #1 – Answers #2, 3, and 4 = $$ (hopefully a BIG,
positive number)
Then the question is: Is $$ above worth selling the property
for?
If so, do it. If not, continue to hold the rental until the
market and your mortgage balance improves further.
However, there is a scenario that skews the math and lets
you skip cost items #2 (home cosmetic fix-up) and #3 (home vacancy costs), and
eliminate or reduce #4 (selling costs in terms of Realtor fees)…
Q. OK, I’ll
bite. What is the scenario?
A. When the tenants
in your rental home want to buy it for themselves.
This is the #1 question to ask if you think you may want to
sell your rental homes. ALWAYS ask the
tenants first. If they do want to buy it,
get them in touch with a mortgage broker and see if they qualify.
If they qualify, this is a win-win exit strategy. The tenants get to start building equity in a
home that they already love. And you,
the owner, get to avoid much of the costs and uncertainty of selling your
rental home.
And what if the tenants proactively ask you if you are
willing to sell your rental home to them when you’re not quite sure you are
ready? You want to think REALLY long and
hard about it. These opportunities don’t
come up that often and you need to make sure that it is something you really don’t
want to do.
Cash is king and the purpose of investments is to make
money. Two well-worn adages come to
mind:
A bird in the hand is worth two in the bush.
AND
Buy low, sell high!
Happy investing!
Brett Furniss is the President & Owner of BDF Realty (Charlotte Residential
Property Management), the trusted real estate advisor for Charlotte
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